Weaker-than-Expected PMIs and a Market-Moving Comment from John McDermott

April 23, 2015

The kiwi slumped 1.4% after Reserve Bank of New Zealand Assistant Governor McDermott said that policymakers are not currently contemplating a further rise in the official cash rate.

Otherwise the U.S. currency fell overnight by 0.6% against the Swiss franc and 0.1% versus the euro but rose by 0.4% relative to the Australian dollar, 0.2% vis-a-vis sterling and 0.1% against the loonie and yuan. The yen is steady.

Preliminary purchasing manager surveys in April were reported for the eurozone, China, and Japan. All were below expectations.

Euroland’s composite PMI fell 0.7 points to a 2-month low of 53.3, suggesting economic growth at a 0.4% at the start of the second quarter. The manufacturing PMI slid 0.3 points to a 2-month low of 51.9, and the services PMI score, 53.7, also was at a 2-month low. New business contracted, and prices fell at a faster pace. Analysts were anticipating about a full point increase in the composite PMI, based on low energy prices, a competitive euro, and quantitative monetary easing. The silver lining in the report is that if one excludes France and Germany, the composite reading would have been higher than in March.

A nascent recovery in France seems to have stalled. The French composite PMI dropped 1.3 points to a three-month low of 50.2. (A score of 50.0 delineates expanding from contracting activity. The manufacturing PMI fell 0.4 points further below 50 to a reading of 48.4, and service-sector activity growth slowed as attested by a services PMI of 50.8 after 52.4 in March and 53.4 in February.

Germany’s composite PMI declined 1.2 points to a 2-month low of 54.2. Readings of 51.9 on manufacturing and 54.4 on services were at 2- and 3-month lows. All three scores were below expectations.

China’s manufacturing PMI of 49.2 was also at a 12-month low and 0.4 points below the reading in March.

Share prices in the Pacific Rim rose 1.9% in Taiwan, 1.4% in South Korea, 0.3% in Japan, 0.2% in Singapore and 0.1% in Australia but fell by 0.6% in New Zealand and India and closed unchanged in China. Equities in Europe are down 1.1% in Germany, 0.9% in France, 0.8% in Italy, and 0.4% in Spain. While the unresolved Greek debt standoff continues to weigh on these markets, the Athens Stock Exchange is up 0.7%. Share prices have firmed 0.1% in Britain and Switzerland.

Ten-year British gilt and German bund yields have slipped two and one basis points, while the Japanese JGB is steady.

The West Texas Intermediate oil price of $55.93 per barrel is 0.4% below yesterday’s closing level. Comex gold has firmed 0.1% to $1,188.40 per ounce.

Consumer confidence in Germany rose only 0.1 point in April, but at 10.1 such is the best level since a month after the 9-11 attacks in the United States.

French manufacturing sentiment improved two points to 101, its best reading since August 2011. However, service-sector confidence slid a point to 92, and overall sentiment was unchanged at 96.

British retail sales volume fell 0.5% last month, reversing a 0.6% rise in February. Non-auto sales dipped 0.2% on month. Analysts had projected a decent increase. Britain’s public-sector net borrowing in March, the last month of the fiscal year, was GBP 6.741 billion, up from GBP 4.8 billion in February. The core PSNB measure was GBP 7.4 billion for the month and GBP 87.3 billion for the fiscal year. The public-sector net cash requirement jumped to GBP 19.444 billion in March.

Italian hourly wage inflation remained at 1.0% in March, matching the first-quarter pace. Spanish unemployment increased marginally to 23.78% last quarter. Finnish seasonally adjusted unemployment firmed 0.1 percentage point to 9.4% in March, most in almost a year. The Swiss trade surplus widened 8.6% on month in March as imports fell.

Year-over-Year South Korean GDP slowed to 2.4% last quarter from 3.3% in the final quarter of 2014.

The NAB Australian business confidence index fell to zero last quarter from a reading of +2 in 4Q14.

India’s index of leading economic indicators slid 0.4% in March after stagnating in February.

Stock and bond transactions in Japan generated a net JPY 772 billion capital outflow last week after a JPY 839 billion inflow in the week of April 10.

Economic data releases in the United States feature new home sales, the Kansas City manufacturing index, Markit Economics’ estimate of the manufacturing PMI, and weekly jobless insurance claims.

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